Shares in AI cloud infrastructure companies CoreWeave (CRWV) and Iren (IREN) jumped on Tuesday morning after Amsterdam-based peer Nebius (NBIS) clinched a $10 billion deal to build one of Europe’s largest data centers. However, the duration of the rally could depend on when sentiment on Big Tech improves.
Claim 55% Off TipRanks
Forget margin or options. Here's how the pros trade CRWVBefore the announcement, shares in all three companies had tumbled over the past two to three trading sessions, as investors continued to fret over Big Tech’s hefty AI spending with additional pressure from perceived macroeconomic risks from the ongoing U.S.-Israel-Iran war.
Why Neocloud Stocks Could Rally Further
These trends have dragged down all Magnificent Seven stocks over the past month, with some, such as Meta (META) and Alphabet (GOOGL), down by double digits during this period. However, the neo-cloud companies could enjoy a further relief rally over the coming period as Wall Street still expects the tech sector to lead the S&P 500 in terms of earnings.
This is because these stocks are traded as a proxy for the AI infrastructure buildout, and their shares see improved performance when investor sentiment on Big Tech turns bullish. This is largely explained by the fact that the firms’ business models depend on supplying additional data center capacity to hyperscalers to meet the demands of their massive AI workloads.
In addition, while there are worries about how the energy crisis caused by the Middle East conflict could impact spending, there are no indications yet of plans by tech companies to cut back on their massive $660 billion AI capital expenditure for this year.
What Could Stall the Rally
Beyond these trends, however, company-specific factors could also determine how the rally plays out going forward. While analysts have a Strong Buy rating on Nebius, CoreWeave and Iren remain a Moderate Buy, with Bernstein recently questioning using traditional methods to value CoreWeave’s business model.
Which Neocloud Stock Is the Better Buy?
TipRanks’ Stock Comparison tool shows that Iren currently offers the biggest upside of about 143%. This is despite the stock’s Moderate Buy consensus rating based on an average price target of $79.78.
